Legislature(2003 - 2004)
03/16/2004 09:07 AM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
CS FOR SENATE JOINT RESOLUTION NO. 24(JUD)
Proposing amendments to the Constitution of the State of
Alaska to guarantee the permanent fund dividend, establishing
the earnings reserve account, and relating to the Alaska
permanent fund; and providing for an effective date.
This was the first hearing for this resolution in the Senate
Finance Committee.
Co-Chair Wilken stated this resolution "requires income earned from
the Permanent Fund to be deposited into a constitutionally created
earnings reserve account. Fifty-percent of the income available for
distribution shall be transferred from the earnings reserve account
and used as payments to State residents as a dividend. This Senate
joint resolution takes effect only if voters approve a spending
limit amendment."
SENATOR SCOTT OGAN, sponsor, proposed this resolution to "enshrine"
the existing Permanent Fund dividend program into the Alaska
Constitution, as it has been successful for many years. He opined,
"Nothing [is] broke[n]; we don't need to fix it." and that usually
government "fixes things until they are broken." He stressed that
the legislature has exercised discipline in depositing significant
portions of the earnings of the Permanent Fund into the corpus of
the Fund. He predicted that Alaskans would have no confidence in
the legislature until the dividend program is protected in the
Constitution.
Senator Ogan shared the impetus of this proposal resulted from
discussions in the Mat-Su Valley relating to subsurface rights. He
remarked that the State of Alaska has those rights, that the
"people" own those resources and as trustees, the legislature has
the obligation to manage those resources to the benefit of all
Alaskans. He stated the Permanent Fund operates with the same
philosophy. He expounded further on subsurface rights and
landowners before Statehood.
Senator Ogan then spoke to a spending limit, which he opined should
be carefully considered. He suggested that making adoption of a
constitutional amendment contingent upon passage of another
amendment could be considered a revision to the Constitution. He
recommended obtaining a legal opinion on the matter.
Senator Ogan referenced an article published in the Anchorage Daily
News related to operating the State government like a business. He
asserted this could be done. He noted that oil companies decide to
reduce operations when prices fluctuate, making these decisions
"behind closed doors," and that "unfortunately" the legislature
does not have this "luxury". Therefore, he stressed a
constitutional spending limit must be enacted, the dividend program
must be enshrined in the Constitution, and the State government
should be "run like a business". Only then, he surmised, would
people be willing to consider using excess earnings of the
Permanent Fund for government services.
Senator Bunde understood the sponsor's comment that subsurface
rights are held in trust for all residents of Alaska, regardless of
the location of the resource.
Senator Ogan affirmed and cited Alaska Constitution Article 8
Section 3, regarding common use.
Senator Bunde also understood the sponsor supported a change of the
"purpose of the dividend" to provide compensation for loss of
subsurface rights. Senator Bunde had understood the dividend was
originally instituted to provide ownership of the corpus of the
Fund so residents would support the continuation of the Fund in
exchange for receipt of a portion of the interest earned.
Senator Ogan countered that the purpose has not changed. He stated
that 25 percent of the royalties generated from subsurface rights
are deposited into the Permanent Fund, which is a reflection that
the money "comes from a commonly owned resource". He shared that he
has become aware that as the reality for some property owners that
they do not own subsurface rights is understood, the necessity to
ensure that all residents receive a portion of subsurface royalty
is heightened.
Senator Bunde concluded that the sponsor attests that the dividend
would constitute compensation for lack of personal ownership of
subsurface rights.
Senator Bunde next referred to the sponsor's testimony that the
legislature has been "good stewards" of the Permanent Fund by not
appropriating significant amounts of the earnings and instead
depositing it into the corpus of the Fund. However, Senator Bunde
pointed out that currently $35 million is expended annually for
hold harmless provisions and other purposes.
Senator Bunde remarked that the dividend amount could have been
"zero" in 2003 and "lower this year." He recalled testimony
attesting that the dividend comprises up to 30 percent of household
income for some residents and that loss of dividends could result
in 30 percent lower income in some regions of the State. He
predicted this would have a significant impact on the State's
welfare system. He remarked that some residents indicate
understanding of this possibility, but continue to support the
current system of managing the Fund. He warned of serious
consequences that could occur in years of low or no dividends.
Senator Ogan responded that the public accepts that dividend
amounts increase and decrease depending upon the performance of the
Fund. He noted that the Permanent Fund Corporation has advocated
for a POMV management method for several years and that such a
system could be implemented at a later date. However, he stressed
that the existing system is sufficient at this time.
Senator Ogan continued commenting about government spending and of
the difficulties in reducing the budget. He concluded the only way
to "get rid of cancer is to cut off the blood supply" and asserted
this must be done with government as well.
Senator Bunde commented recalled that funding was added to the
dividend program due to public demand. He predicted that if the
existing system continues, areas of the State that rely on
dividends would suffer and subsequently the burden would be placed
on the State. He warned that this could result in substantial
increase in State spending.
Senator Olson addressed Senator Ogan's assertion that the State
government should be operated like a business.
SFC 04 # 41, Side A 10:42 AM
Senator Olson cautioned against operating the State in the same
manner as the now bankrupt Enron Corporation was operated, in which
management is suspected of illegal activities that defrauded
shareholders and employees.
Senator Bunde restated his concern about the impact sanctifying
dividends in the Constitution would have on other states and their
congressional delegations in appropriating federal funding for
Alaska if the State reserves its earnings for individuals and not
for government services.
Senator Ogan pointed out that the resolution was amended by the
Senate Judiciary Committee to add a provision to repeal the
Constitutional amendment if a final determination is made by the
U.S. Internal Revenue Service that utilizing the Permanent Fund in
this manner would cause the Fund to be taxable.
Co-Chair Wilken ordered the resolution HELD in Committee.
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